Macy's (M) Stock: Navigating Contradictions Between Hope and Reality

Macy's (NYSE:M), the century-old retail giant, finds itself at a crossroads. While its “First 50” stores have sparked optimism about a turnaround, broader operational challenges—from declining sales to aggressive store closures—paint a bleaker picture. Amid this tension, the question arises: Does Macy's recent Zacks Rank #1 (Strong Buy) reflect a genuine shift, or is it an anomaly in a sea of red flags? Let's dissect the data.

The Contradictions: Growth vs. Decline

Macy's Q2 2025 earnings offered a glimpse of resilience. Revenue hit $4.6 billion, exceeding estimates by $220 million, and EPS of $0.16 narrowly beat expectations. However, these results mask deeper issues. Year-over-year, revenue fell 5.1%, and EPS plummeted 33% compared to Q2 2024. Analysts have since slashed 2026 EPS estimates by 43%, reflecting skepticism about sustained recovery.

The company's “First 50” initiative—a focus on top-performing stores—has delivered standout results, with comparable sales growth outpacing the broader chain by 460–600 basis points. Management aims to expand this success to 100 stores, hinting at a path to efficiency. Yet, this progress is overshadowed by plans to close 55 stores in 2025, up from 50, signaling a retrenchment strategy.

Valuation: A Bargain or a Trap?

Macy's stock trades at a P/E ratio of 5.62, near its 52-week low, and yields a generous 6.59% dividend. At first glance, this appears compelling. However, the payout ratio of 37%—a measure of dividend sustainability—depends on earnings stability. With EPS estimates falling and revenue trends weakening, the dividend's longevity is far from certain.

The chart above underscores the disconnect between valuation allure and reality. Despite the low P/E, Macy's shares have underperformed the broader market, down 6.9% since its last earnings report. Technical indicators like the declining 50-day moving average ($11.64) and the widening gap below the 200-day average ($13.69) suggest lingering pessimism.

Analyst Sentiment: Hold the Line

Analysts are split. While one firm boldly assigns a “Strong Buy”, the consensus leans toward “Hold” (2 Sells, 10 Holds, 1 Buy, 1 Strong Buy). The average price target of $13.20 is a modest upside from its current price of ~$11.07—but this target has been steadily revised downward, with Goldman Sachs and JPMorgan recently trimming their forecasts.

The Zacks Rank Anomaly

The crux of this debate lies in the Zacks Rank #1 (Strong Buy), which appears to contradict the broader narrative. However, a closer look reveals inconsistencies. Zacks assigns its rankings based on earnings estimate trends, and Macy's recent downward revisions—particularly the 43% drop in Q2 2026 estimates—should logically push its Zacks Rank lower, not higher. In fact, Zacks currently rates Macy's a #4 (Sell), suggesting the #1 ranking referenced in this analysis may be an error or outdated.

This discrepancy highlights a critical flaw: reliance on conflicting signals. While Zacks' proprietary model might flag undervaluation, it ignores the structural issues plaguing Macy's, such as consumer spending fatigue and a shrinking store footprint.

Investment Takeaway: Proceed with Caution

Macy's stock presents a classic value trap scenario. The dividend and low valuation may attract income-seeking investors, but the fundamentals—shrinking sales, store closures, and weak earnings momentum—argue against long-term optimism.

• Bull Case: The “First 50” expansion succeeds, and holiday sales rebound due to exclusive partnerships. The dividend remains intact.
• Bear Case: Consumer caution deepens, margin improvements stall, and store closures fail to stabilize profitability.

For now, the risks outweigh the rewards. Hold or sell unless you can stomach significant downside. The Zacks #1 ranking, if valid, likely overvalues the company's ability to overcome systemic challenges.

In a sector where survival hinges on adapting to e-commerce and shifting consumer habits, Macy's needs more than isolated store wins—it needs a full-scale turnaround. Until then, the odds favor caution over conviction.

The chart above illustrates the relentless downward pressure on earnings expectations—a stark reminder that hope, without execution, is a shaky foundation for investment.